Is there ACA rate shock in California?

I wasn’t going to weigh in on this, but enough of you have asked me what I think of Avik Roy’s claim that California insurance premiums, under ACA, will go up 64% to 146%. Let me start by telling you this: based on a reading of the secondary commentary, I cannot tell you how much rates in California will be going up (and my original inclination was not to blog it for this reason).

Still, the question having been raised, let’s go back in time. In 2009, the CBO wrote (pdf):

CBO and JCT estimate that the average premium per person covered (including dependents) for new nongroup policies would be about 10 percent to 13 percent higher in 2016 than the average premium for nongroup coverage in that same year under current law.

About half of those enrollees would receive government subsidies that would reduce their costs well below the premiums that would be charged for such policies under current law.

If you read their subsequent discussion, it seems fairly clear to me they are not averaging “higher premia for those still getting insurance” with “a price decline from infinity, for those who couldn’t get any insurance in the pre-ACA days,” in some kind of complicated index number fashion. They are talking about price increases on already-existing policies and what kind of continuation one can expect.

I will treat this as the canonical estimate, and stipulate that we will have had “rate shock” if the percentage increases are three times higher than had been forecast by the CBO.

What we know for sure the bill will do is that it will lower the cost of buying non-group health insurance.

Maybe he had in mind an index-number weighting where the “price decline from infinity” weighs heavily in the calculation and in that sense such a claim can always be true if even one person receives extra coverage. Still, I am more likely to call it a misspoken sentence, a Denkfehler, an excess enthusiasm, and most of all a highly inexact way of describing the issue no matter what is the truth. It was always the case that the median and modal individual premium was likely to go up, even with full political cooperation from the Republicans. After all, that is part of the “efficient lump sum taxation” idea behind the use of the mandate in the first place. And yes I do understand that a competitiveness effect and a transparency effect still may push prices down but that is not the way I would bet it and for sure it is not “for sure,” to quote Gruber, that such prices are going to fall. (By the way here is an Indiana estimate of rate increases in the range of 70-90%; I can’t vouch for the underlying data. It also seems that price declines are highly likely for New York state, in part because the current system has so many problems. So we also need to be disaggregating the different states here. Also, here is some informal poll evidence for a 30-40% rate increase at the individual level, with some higher increases for some other groups. Caveat emptor, but those would be higher rates and they might even surpass the 3x standard I have set up.)

If you add in President Obama’s varied comments on the matter, I absolutely do see the real truth behind conservative and Republican complaints of “bait and switch.” The median and modal cost of buying non-group health insurance is likely to go up, not down, and not everyone will enjoy the option of keeping the status quo, as had been promised. And that whole matter is being given a different spin today than it was say in 2009. On that Roy is entirely correct.

(In passing, I see employer shedding of coverage as a greater danger to ACA at the macro level, so in my view it is a mistake to see too much of ACA as turning on this issue.)

On the other side of the debate, you will find criticisms of Roy here, here, here, here, and here, among many others. At least two points of the critics seem to stick, first that these may be teaser (status quo) rates sampled by Roy and second we don’t know actually which individuals can end up getting those rates, once they fill out the questionnaires about the earlier medical histories. But even there we are left with “we don’t know” more than “I have better numbers which show Roy to be wrong.” The level of subsidies is relevant too. I think also that Roy’s response undercounts the number of uninsurable people. The worry is not that the market price for insurance is infinite, but rather at the prevailing market price one is simply paying one’s medical bills, plus a processing premium to the insurance company, rather than obtaining ex ante insurance.

To raise two other points critical of Roy’s position, first I am uncomfortable with putting so much emphasis on percentage rate increases, when some of these sums in question may be relatively small. (I find the emphases in Megan’s presentation of the numbers more useful.) I also think it requires a lot more argumentation to measure the number of “those who can’t get useful insurance” than by looking at the number of applications for the high-risk pools, even if that argument ultimately succeeds.

That all said, I find the screeds of most but not all of Roy’s critics to be inappropriate or in some cases beyond inappropriate. It is disturbing how much space and emotional energy is devoted to attacking Roy, and to attacking conservative policy wonkery, relative to trying to calculate the actual extent of rate shock or possible lack thereof. That is not how good policy wonks go about their job.

I think there is quite a good chance we will see rate shock, as I have defined it above. I also think we still don’t know. I also see rhetorical bait and switch from ACA defenders. I also see that Roy is too quick to jump on possible negative information about the California rates without nailing down the case. I also don’t think these are the most important issues for ACA, though they are issues worth discussing.

Given the large number of uninsured who will pay little for subsidized coverage, the median and the mode will almost certainly fall.
Perhaps you meant the median and mode among those who already have coverage?

And since the uncovered are paying nothing now and will pay something later, even math gimmicks don’t help that particular gimmick. All that really matters (utilitarianly speaking) is money in and health outcomes out.

From 6/4/20123 Instapundit: “Sorry comrade, but what you’re offering is mere bourgeois truth, concerned with tedious facts. The higher truth is ‘revolutionary truth,’ which is any narrative that advances the revolution.”

No. That is most certainly NOT the question “conservative punditry” is trying to whip up passions over. They want to establish that most people will be paying more for health insurance. And that is almost certainly false in the presence of subsidies. Do you think Republicans could get any traction with an argument that says “our overall health costs will grow but many people will be subsidized and not pay any more due to medicare reimbursement cuts and increased taxes on the wealthy?” If so you should call up the relevant congressional representative and tell them to change tack, cause that ain’t what we’re hearing.

Ummm, yes. That is one reason ACA is so unpopular. Also, people are going to pay more over and above the pilfering…I mean “subsidies.” That is what is being talked about this particular moment. The very first thing was “we need to make people pay into the system who aren’t paying.” That might be the only thing they didn’t lie about.

mw, you mean redistribution masquerading as social insurance, which, in a nutshell, is the whole problem. Of course, the left wants to obscure this with muddled thinking.

There is nothing inherently redistributive about social insurance, or insurance generally. If 100 people buy homeowner’s insurance and 1 house burns down, it is incorrect to say that 99 homeowners redistributed to 1.

So, basically, we’re going to subsidize a bunch of healthy young people so they will buy insurance, so that older sicker people will pay lower rates?

If that was the plan, why don’t we just subsidize rates for older sicker people directly, instead of going through this hackneyed roundabout exercise in forcing people to purchase products they don’t want or need?

I love this idea that only old people get sick. They get sick *at higher rates* than younger people. National health expenditures are ~$15k / person>65, $4.5k / working age person. In other words, a factor of 3, not a factor of infinity. Everyone needs health insurance, because some people (old and young) get sick.

For some, without dependents and with a low risk of major health costs, it makes sense to simply self-insure. That’s why many young people do. It’s also being outlawed under the ACA.

For others, it would make sense to have a catastrophic care level of health insurance in order to provide more financial predictability. Sadly, that sort of policy is being outlawed under the ACA.

For people with relatively predictable health costs, insurance just adds a level of bureaucracy and additional paperwork/cost to the whole process. What they need are resources to pay for their health care, not a payment plan to a third-party which assures them of paying too much for their health care once all the additional costs and profit margins are taken into account. This is being made worse under the ACA.

I’ve been trying to come up with anything in the ACA that will actually result in lower health care spending or costs, but I haven’t been able to find anything yet….

I like this idea. I think you personally should guarantee the “low risk” and “predictability” associated with these non-insurance options and reimburse the system for leukemia patients of working age.

As for costs, I’m sure you’ve found *all* the (obviously non-ACA) causes for why health spending rises HAVE slowed since ACA started increasing costs. And you have all the non-ACA causes for why you and everyone else were wrong about CA exchange prices.

Thomas, this MIGHT be true except for the chargemaster: The cost that a person pays if that person does not have insurance.

For example, my wife broke her elbow last summer. The insured cost was about $7,800, of which we paid about $4,500 and the insurer paid the rest. However, if we had not had insurance, the cost would have been $72,346.66. (I might be missing a late bill in there, but close enough.)

Now you can argue that the chargemaster is exorbitant, and I’d agree. And you could argue that many people are able to negotiate that amount down, and you’d be right – sometimes. And you can say the chargemaster should be outlawed or abandoned or whatever. However, that is the amount the health care system will attempt to extract from you if you get hurt. And they will get it, and you will go through hell if you fight them on it.

So, before 2010, those without money, credit, or insurance to cover health care were left to suffer and die, with no opportunity for a government intervention and bailout no matter the cost?

If you are given health care by government dictate because you said you needed it and found an ER that gets Medicare payments, and then you got the government bailout that did a transfer of wealth from whoever holds your medical debt to you (deeming the debt paid) from a government technocrat called a bankruptcy judge (required by the Constitution), weren’t you a beneficiary of government providing your health care before Obama took office?

Surely you are not arguing that Obamacare causes accidents and illness.

the fact that insurance company profit margins (on average) are significantly less than health care providers’ profit margins (on average) suggests a significant bargaining asymmetry between them. So most, if not all, of the surplus revenue generated by the rate increases will be negotiated away from the insurance companies and towards the providers.

Is that the “REAL” cost of care, or is it simply excess profits to providers? I’d say it’s excess profits, but I’d also say that any particular person’s answer is likely to be heavily ideological, not empirical.

A competitive market exists for health care providers, the problem is that it’s not based on the quality of health care because actual medical practice is basically the same everywhere in the developed world.

“actual medical practice is basically the same everywhere in the developed world”

No, not at all, actually. I’m an American living in Britain, and the standard treatment practices, medications, etc. are often quite different.

Sometimes care is different but equivalent, and sometimes it very much is not. For example, insulin pumps have revolutionized care and improved outcomes for those with Type I Diabetes in the United States, but they are hardly ever used in the UK because of the cost.

I do not see the “bait and switch” argument. A bunch of people who could not get insurance before and a bunch more who could get it but with no assurance that there rates would not spike if their health status changed will get insurance at lower cost to them, especially after taking account of the subsidy. That bait has not been switched. As for more people loosing employer linked health insurance and using the exchanges, what is the problem with that? ACA did not eliminate the subsidy for employer purchased health insurance and even (mistakenly in my view) mandated its continuation. That goes about as far as is possible to reassure those currently insured that they would keep the kind of insurance they have as is possible. No switch there, either.

You are describing the switch by redefining the bait. The bait was “if you like your health coverage, you will get to keep it.” That is not the case. I’d call it a lie, but I don’t think Obama knows economics.

The ACA at to be a net benefit must save more money than it expends on administration of the program.

This is generally true of all government programs, but the idea is specifically of merit when the stated function of the government intervention was to make healthcare more affordable.

I don’t see anything that has not been implemented that is going to reduce costs or even bring cost back to pre-ACA costs.

If the cost of healthcare can be represented by (after tax income) = (pre tax income + after tax income) = (pre tax income + after tax income + my taxes given back in the form of a subsidy) = (some other variation) my cost is stil not being lowered.

Given that the current and projected cost of my healthcare is (pre tax income + after tax income) < (pre tax income + after tax income + my taxes given back in the form of a subsidy to someone else), ACA does not benefit me individually.

For ACA to be a benefit to society as a whole, it needs to be (current healtcare costs + administrative compliance costs – cost savings due to ACA), where (adminstrative compliance costs – cost savings due to ACA) <0.

There is plenty that has not been implemented yet or is so early in the implementation that there is no way you could expect an impact yet. How quickly do you think alternative Medicare payment models can be piloted, evaluated and scaled up nationally? http://innovation.cms.gov/

Your last equation doesn’t take the projected spending growth into account. When people talk about bending the cost curve, it means lowering spending relative to projected spending.

“This law will cut costs and make coverage more affordable for families and small businesses. It’s reform that brings — that begins to bring down our government’s long-term structural deficit. It’s reform that finally extends the opportunity to purchase coverage to the millions who currently don’t have it — and includes tough new consumer protections to guarantee greater stability, security and control for the millions who do have health insurance.”

President Barack Obama

Remarks by the President on the Affordable Care Act and the New Patients’ Bill of Rights

Saying that the “law will cut costs and make coverage more affordable” is not the same as saying it will reduce costs below their current levels, but I’ll agree the language is slippery (and probably deliberately so). And claiming to “bring down our government’s long-term structural deficits” is in fact claiming to slow the growth in healthcare costs. In any case, criticizing the law for not doing enough to control costs is pretty disingenuous since the most rigorous cost control measures were stripped out in response to the “death panels” kerfuffle.

How do you think took the “bait”? People who supported the bill generally did so because they wanted to make healthcare less costly for low and middle income families, (not for society as a whole) and improve access for people with pre-existing conditions. People whose primary concern was total spending on healthcare generally opposed the bill.

Everyone should have expected that rates for young, healthy people would go higher in a guaranteed-issue, community-rated plan with limits on price discrimination by age. In return for that, young healthy people are paying for *future* access to health insurance, when they are no longer young or are no longer healthy. Whether that money is worth it depends a lot on your estimates of the probability that you will someday benefit from the guarantees, and of the timing.

It is also true that a policy with generous benefits, low deductibles, and lacking annual or lifetime caps will cost more than a policy that strictly constrains benefits and asks for a lot of cost sharing. I think there is a legitimate discussion to be had about what the minimum coverages should be. In Switzerland, for example, the base package is pretty generous, but it greatly limits choice of hospitals and doctors. If you are hospitalized, you stay in a ward of four to eight patients, rather than the semi-private room that is typical in the US. There is quite a lot of flexibility around cost-sharing in the ACA. Perhaps there should be some additional flexibility in coverages.

Well said. I’m surprised Tyler didn’t pick up on this point, as it is a fairly common critique. Roy is not really making an apples-to-apples comparison between existing individual insurance policies and those provided in the exchange. For his comparison to be valid, he would need to show that the amount of coverage/benefits provided would be about the same.

Being required to pay extra for coverage you didn’t want isn’t a “benefit”. It is, however, one of the main drivers of increasing insurance rates from the ACA in States that used to be able to keep them down lower with lower coverage requirements.

New Headline for this Post: “Is There a MR Shock About Some Very Good News for Obamacare.”

The reason I rewrote the headline for this post is that it is sort of a journalism/advertising game that is being played on this blog’s audience.

You start with the strong lead headline–“Are There Mysterious Things Happening at Area 59”–go through the article, and find nothing. But, you read the article, and are left with the impression that some mysterious things are happening in Area 59. But, in this case, because they are not making apples/apples comparisons, you could say the article’s headline is about Area 59, the story is about Area 59, and the activity is on Area 71.

I really do not know what your objection is to the post title. “Is there ACA rate shock in California?” is about as straightforward as can be for a post discussing claims that there is ACA rate shock in California.

BTW, those areas are nothing. It’s area 33 you should be worried about.

dan1111, I think you miss the point of what was above my comment (see comment of David as well as Eric), and didn’t read Klein’s post either. Here are some points you may have missed as well: 1) the comparison is a false comparison: benefit levels are different; and dah, if they are different, then the price is different so the comparison is apple to orange; 2) even with this, rates are lower, controlling for apples; and 3) intertemporal prices are lower (we all age, and therefore your rates are lower later).

Oh, and Dan1111, if you make a comparison of two products, also ask: does one of them insure you with pre-existing conditions, and can you change jobs more freely than before. Or, is that putting the thumb on the scale, or in Tyler’s case, taking the thumb off the scale if you don’t adjust for product differences or new freedoms you now have that you didn’t have before.

3) Tyler (reluctantly) authors a post, titled “Is there ACA rate shock in California?” He argues that it is too soon to tell, and that both sides in the debate are overreaching.

Your conclusion: Tyler is playing a “game” on his readers by using a “strong lead headline” that will sneakily leave them with the impression that there is, indeed, a rate shock.

I find this conclusion bizarre. The headline seems purely descriptive of the question that is being considered. Further, I don’t think this really works as a theory of Tyler Cowen. If he really wanted to implant the idea that there is a rate shock in our heads, why not actually argue for that idea, instead of planting subliminal messages in a post that is very equivocal about it and doesn’t really take a side? Wouldn’t that be a lot more effective?

The other stuff that you say I missed may be very interesting, but I don’t think it relates to this point.

Dan1111, It’s like comparing the US Healthcare system to any other healthcare system in the world. Two different products. Apples/oranges. Can’t do it, as Bill says. So whenever you see someone claiming that the healthcare system in another country is so great because XYZ — say, Europe — just tell them that, “Hey, apples/oranges, man. Can’t do that.”

Ryan, Does your argument make sense? Fallacy of the middle term. I didn’t say you couldn’t compare both systems, controlling for outcomes. Hell, you don’t have to even control for anything when one system has better outcomes at a lower cost–sort of a no brainer.

Bill, ask yourself this: what is the fundamental question asked in this post? Let it settle, then, work your way back from there. Or better yet, I have a product to sell you. Indeed, you don’t care for 40% of the product but, no worries, I have sufficient controls in place to show that you’re still getting out ahead. Your pockets may be leaner but better off, see my controls.

Ryan, I do not understand your statement, but if you are saying that you cannot compare the US system healthcare outcomes and costs to other countries outcomes and costs, I suppose we will not agree, but I guess I understand where you are coming from, irrational as it is. My point is that one does not need experimental controls if the outcomes are better and the costs are lower relative to the US. You would need controls if the outcome were lower and the costs were lower, or if the outcomes were higher and the costs higher.

Outcomes are worse everywhere else, endless NGO propaganda using things that don’t measure healthcare-related outcomes notwithstanding. We do more health care per capita, we do it better than anyone else, and we are paying for the bulk of the new medical research being done.

If you want to experience socialized healthcare today, just forego about half your prescribed treatments and anything that was invented in the last twenty years. Enjoy!

That’s unduly cynical of you, JWatts. Let’s be fair, for all you know Ezra was telling the IRS which Tea Party groups to target, or helping the DOJ identify unsympathetic journalists to target, or helping the EPA sort out which groups get free FOIAs and which are charged millions of dollars. I mean, come on, the possibilities are endless.

It is also true that a policy with generous benefits, low deductibles, and lacking annual or lifetime caps will cost more than a policy that strictly constrains benefits and asks for a lot of cost sharing.

It’s also true that high-deductibles and cost-sharing give consumers SOME sort of incentive to control their spending, whereas a policy with low-deductibles, generous benefits, and no caps, paid for by someone else (government or employers) gives them ab-so-lutly no fucking reason to care what anything costs.

Which do you think will do more to control the groewth of healthcare costs?

“Everyone should have expected that rates for young, healthy people would go higher in a guaranteed-issue, community-rated plan with limits on price discrimination by age. In return for that, young healthy people are paying for *future* access to health insurance, when they are no longer young or are no longer healthy. Whether that money is worth it depends a lot on your estimates of the probability that you will someday benefit from the guarantees, and of the timing.”

Yes, this is just another govt ponzi scheme, much like SSI and medicare. The young pay in more than they take out. The younger you are, the more you get proportionally screwed in the ponzi scheme. The funny thing is, young people are too stupid to realize this.

David C’s comment that there is a legitimate discussion to be had about minimum coverage is exactly on point. Sadly, when ACA was being debated that discussion never happened–or to be more precise, the “discussion” was part of the political power struggle that created this bill.

David is also clearly correct in saying that young people are paying more for insurance today than they would in almost any other system. But why do we think this is buying them access to lower cost insurance in the future? The rate discrimination against the young and in favor of the old wasn’t the result of some grand intergenerational bargain. It was the result of a game of power politics won, not surprisingly, by baby boomers.

Interesting that you bring up the annual basis. You don’t need to pay long in the distant past for access to the medical club unless you didn’t cover yourself against the emergence of pre-existing conditions. Every year you can get insurance. If you did not insure against a chronic pre-existing condition then it is perfectly reasonable to not get paid for it. The simple question is why can’t I choose to make or not make that bargain?

Really, very few people want to have that discussion about “minimum level of coverage.”

If so, a solution would be easy: have the government use the roughly $2000-per-capita budget it’s spending on Medicare and Medicaid, and transition to a plan that, say, provides everyone either 1) that minimum level of care, or 2) a tax credit to buy your own coverage.

But no one wants to have that discussion about “what amount of money is too much to spend to save someone’s life?” If Democrats do it, Republicans wig out about death panels and rationed medicine and whatever. If Republicans do it, Democrats flip out about “putting profits over people” or something equally inane.

I’ll leave it to dearieme to talk about the NHS, but what makes you think that in Germany, the government is more involved in the health care system than in the U.S., at least in terms of size?

There are so many different models to choose from, all of them considerably cheaper, and with the exception of the NHS (which can be considered part of the government, as far as it goes – with the caveat that this is just an outsider’s observation), they involve less government than in the U.S.

It is incredible to watch this American attempt to improve its outlandishly ineffectual system from any country with a functioning health care system – which is all of the industrialized countries in the world.

It must be due to the metric system – after all, that is another thing the U.S. has tenaciously kept from its shores. And for an outsider from any other country, not only industrialized ones, apparently for many of the same crazy reasons.

Yes, those wonderful functioning cost-effective health systems that do half as many MRIs per capita, half as many organ transplants, get drugs years later than we do, recommend abortions for expensive babies, pay for little to no R&D. They’re great systems if you scrape your knee, not so great if you need a new one at 65.

In America the poorest people get European levels of healthcare through Medicaid, and people with jobs get something much better.

At least two points of the critics seem to stick, first that these may be teaser (status quo) rates sampled by Roy and second we don’t know actually which individuals can end up getting those rates, once they fill out the questionnaires about the earlier medical histories.

And that leads to some further points. Roy should have checked on this before writing an article with spectacular claims about rate increases. His “research” was worse than sloppy and his article was an outright misrepresentation. Should we trust him in the future, or is he a hack ready to put out whatver nonsense pleases his masters? Should we trust Forbes?

As for,

But even there we are left with “we don’t know” more than “I have better numbers which show Roy to be wrong.”

I think that’s disingenuous. When you see a number that is clearly a lower bound on some range of values it’s clear that it is not the average. We may not know the average, but we know it’s higher than the number presented. I bet Roy knows it too.

If the sticker shock of the ACA were solely a matter of increased insurance premia, I don’t think anyone in the USA except jerks like me would have a problem with it.

But just wait until they face the “sticker shock” of horrendously increased wait times, shrinking formulary sizes, decreased medical innovation, and even more of a diagnose-by-numbers health care atmosphere than already exists. I would almost not care about the idiocy of the ACA if all we were looking at was cost increases. But the impact of this monstrosity will contort the health care industry in a way that Americans are not very accustomed to.

Most of them won’t end up attributing the decline in quality of care to the ACA. After all, who would ever imagine that bad legislation would cause floor stains and peeling furniture? You have to live 10 years under government care to make that kind of connection, and only then if you have an “American style” health care system against which to compare it.

I guess on the plus side, the medical tourism industry stands to win big.

The exchanges will collapse financially within two to three years unless the penalties are raised enough to make the healthy individuals indifferent to the decision to buy in, or not buy in. The only other alternative is to raise the subsidies enough to accomplish the same goal. This will be the political battle going forward- how to keep the financing side of the ACA functional.

The exchanges will collapse financially within two to three years unless the penalties are raised enough to make the healthy individuals indifferent to the decision to buy in, or not buy in.

That would result in extremely high penalties for the 20-30 year old age group, which is a key demographic for the Democrats. So that’s a non-starter. No, the Left will push for increasing the subsidies, instead. Then when the Republicans resist increasing the subsidies, the Left will blame the failure of the exchanges on Republican obstruction. And then they’ll probably start calling for “Medicare for Everyone”.

You think the subsidies aren’t high enough? If spending a maximum of 9.5 percent of household income on health insurance is too much, how much should it be?

I don’t think this argument holds water. People want health insurance. They will buy it, if it is affordable. The subsidies make it affordable, so people will buy it. If the insurance is affordable from the get-go, thanks to the subsidies, then there won’t be this death spiral.

The exchange-system depends on the people buying in the future who don’t buy today, or didn’t yesterday, because of the personal cost/benefit calculation. Even Ezra Klein concedes that the out of pocket costs to young healthy individuals in the individual policy market are going to have to rise in order to provide some of the funds to (hopefully) lower the costs to the older and sicker cohorts in the same markets. You are not going to entice more such people to voluntarily purchase by raising the costs of the product- the opposite will happen. The subsidies have to be raised for this cohort, or the penalty must be raised. Someone has to foot the bill.

The penalties aren’t in effect yet, and wont be fully implemented till 2016, so current data on health care purchasing decisions doesn’t tell us anything about their effectiveness in changing behavior.

Yes, the OOP costs will rise for some younger people, but the ease of purchase, the transparency of the market, and the psychological effect of a potential tax penalty provide them good opportunity and motivation to buy it.

Remember, though, that the demographic you are talking about (younger people without Medicaid or employer-sponsored insurance who aren’t covered under their parents’ plans) is an exceedingly small share of the market. The total proportion of Americans expected to get insurance through the exchanges is < 10%. The young, healthy portion of this 10% is smaller still.

Thanks Tyler for posting on this – I have followed a lot – but not all of the discussion and response to Roy with some sadness. We don’t seem to be able to talk about this logically and with a sense of mutual respect.

I actually think the most irresponsible action was taken by the folks who said “see, this won’t be so bad” when the initial rates were released – Roy’s post was in response and I frankly think he would have been better served by saying something like “we really don’t know yet” than going to “things are worse than you are being told”.

I also find it disturbing that we gloss over some things – like the 50% penalty that the ACA will impose on the roughly 20% of the population that smokes – actuarial data [current rates] suggest a 20-30% penalty might be warranted – but 50%? Of course the Libertarian in me wonders exactly how this will work – who is going to tell the insurer that I smoke? And what is the penalty for lying? And how will it be collected?

I worry too that year one is not going to be much like year three. Young healthy smokers have a LOT of reasons to pass on getting insurance. Yes there is a “tax” – but how can that be collected – the IRS is pretty toothless today under the ACA – if I do not overpay on my withholding they cannot do much other than “put it on my tab”.

The decrease in employer coverage will be bigger than expected in my opinion – but maybe I will be wrong on this. The initial rates will not be as high as some have feared, but will increase faster than the economy will grow or inflation – again IMHO. And I honestly do hope I am wrong on this.

Yes there is a “tax” – but how can that be collected – the IRS is pretty toothless today under the ACA – if I do not overpay on my withholding they cannot do much other than “put it on my tab
+2, That’s a very good point.

I expect we’ll start seeing a lot of stories about young people owing large amounts of unpaid taxes due to Obamacare.

After all we’ve spend a lot of time exploring the idea that the young will pay the penalty vs buying the insurance because the penalty is cheaper. But we’ve ignored the obvious point that the penalty can’t easily be collected. It won’t take younger workers very long to realize that they can skirt the penalty by lowering their withholding amount.

Tack on the increasing number of young people in self-employed independent contractor freelancing businesses. Why even file your income taxes at all if you not only have to pay FICA as a self-employed person, but pay the penalty on top of that? Just fuck the whole thing and go grey-market.

Heh. In British Columbia we pay around $100 per month +- into what is called Medical services plan. Most of the health expenditures are paid by taxes, but everyone is supposed to pay this. A few years ago there was a news item where someone went to the hospital for something or other, and hadn’t paid. He had just changed jobs and his previous employer had paid the fees. I don’t remember why it hit the news, but I think there was a delay in getting treatment or something, but what was interesting was that an acquaintance asked everyone he ran into for the next while and found that only he and very few others were actually paying the fees. The response was that health care was free, they will treat me if I show up, so why pay?

Sure they do. Just look at the comments on this thread. ‘The subsidies will take care of all our problems. We’ll just raise the subsidy level if people at the low end aren’t paying.’ It’s ‘free’ money after all!

1. You write that my response “undercounts the numer of uninsurable people.” But the PCIP program’s eligibility criteria were precisely defined to address the truly uninsurable population. You had to be able to show that you were denied coverage — as opposed to being granted costly coverage — for six months in order to enroll. That is why enrollment in the program is so low (115,000 or so at last count).

2. As Ezra and I noted, the scale of the “teaser” problem is relatively easy to quantify. Healthcare.gov issues statistics on the percentage of people who do not get the quoted rate. In the case of Ezra’s example, 74% did get the low, quoted rate of $109.

3. You write that the rate increases, in dollar terms, “may be relatively small.” I don’t agree that they’re relatively small; for a person making $30,000 a year, an $800 a year increase in insurance costs, after subsidies, is quite meaningful.

4. You say that you “don’t think these are the most important issues for ACA” — I would disagree also. I think that the rising cost of health insurance is a pretty serious public policy problem, especially given how much the individual market is set to grow.

Otherwise, thought you did a great job of laying out the issue — and thanks for addressing the tone of the debate also.

The fear is that higher premiums will cause people to opt for the penalty, thus leaving the program short of money. But who are these people who will opt out? They’re described as young and healthy. I’m not sure it’s a large amount of people, for a few reasons:

1. People under 26 can stay on parent’s policies. Not all people under 26 may have a parent’s policy to latch on to, but this will limit the number who chose the penalty for the “under 26” demographic. So are we talking mainly about “young people who are over 26?” What’s that group? 26-30? Personal anecdote here, but by 30, an ulcer, car crash, and bike accident made me too risk-averse to want to be uninsured.

2. Half of “young and healthy” people are women. Due to things like pregnancy and the fact that women’s bodies are just plain ol’ complicated (ovarian cysts, etc. are pretty common among young and otherwise healthy women), I don’t suspect the percentage of women opting for the penalty will be nearly as high as men.

3. I’d imagine that those with a decent subsidy will utilize it. The “opt for the penalty” group will mainly those who don’t qualify for a subsidy.

4. Lastly, we’re talking about the individual market. People who get their insurance through their employer will likely continue to do so.

If we put it together, the “group” in question starts looking more and more like something akin to “men between the ages of 26 and 30 who don’t get insurance through their employer, but make too much to qualify for a subsidy.”

Yes, there will be people who opt for the penalty who don’t fit that criteria, but I’m guessing that’s where you’ll find the highest percentages in the cross-tabs.

I remain unconvinced that such a demographic block is big enough that even with high rates of opting for the penalty that it’ll really jeopardize the funding of the program.

ACA explicitly counts on a large amount of the financing to come from the previously, voluntarily uninsured actually buying more insurance than they need and will consume. It is why you have the mandate in the first place. Either the block is as you described, and the ACA is underfunded already, or the block is as large as ACA designers believed, and ACA is likely to become underfunded as that block still refuses to buy a product that is of no positive value to them. Part of the problem, in addition to the out of pocket costs of the policies themselves, is going to be that that the price of not buying such policies is being lowered by other provisions of the ACA.

Exactly. I don’t see the ACA proponents and other hand-wavers making this point, so the mandate must be a meaningful source of funding for the act itself (of course, the bill itself explicitly acknowledges this in the various calculations of funding requirements)

I have to run (longer answer to come), but the short answer is that “opting out” with the mandate requires a penalty fee, whereas opting out without the mandate means you pay zero. So opting out with the mandate results in the loss to “the system” of:

(amount of forgone premium – penalty) x Number of people who opt out.

without the mandate, it’s:
amount of forgone premium x Number of people who opt out.

Those are different sums of money.

There may very well be a funding problem if that first number is too large. But if it’s not, that doesn’t mean the second one isn’t either. They differ by an amount of “penalty x number of people who opt out.”

Personally, I think the answer is to make the penalty larger to ensure it’s not a problem.

There’s a difference between being totally uninsured and having a high-deductible policy.

I used to have a $60/month policy with a $10,000 deductible just a couple of years ago (as a mid-30s female). Since I have over $10,000 stashed away in savings (or could borrow that much from relatives in an emergency), there was no reason to purchase a more expensive plan. When I went to the doctor, I got the discounted rate negotiated by the insurance company, so I never reached the deductible, but I benefitted from it anyway. That plan, over a year would cost me $720.

Now imagine that I’m in the individual market today as a mid-30s female under the ACA. I can opt for the $720 high-deductible plan, and pay the penalty $800. Or I can spend (say) $170/month for a “bronze” plan (which is probably low for mid-30s). Option A costs me $1520. Option B costs me $2040. I save $500 a year by paying the penalty, with only slightly increased financial risk to me.

Great, Hazel, I won’t be paying for you in my insurance premiums! Hazel, you are no longer a free rider. You are free to change employers. Be happy. And, if you are comparing policies with high deductables and ones with better coverage and lower coverage, it is a bit disingenuous not to include your payments for deductables in your computation of total costs of the high deductable plan and not adjust for risk coverage (why do you presume you are not actuarially average??), but that is no less disengengous that comparing an apple to an orange.

What you should be worried about, Bill, is that *I* won’t be paying for *you* in *MY* insurance premiums.
That’s the point. For many relatively healthy, relatively young people, it will not make financial sense to participate in the ACA’s regulated insurance market. Thus causing insurance rates to go up on older sicket people.

Hazel, Sorry, with community rating and bands, your premise doesn’t work: young are not in the same pool as older. And, yes, the Walmart employee will have to purchase insurance, even if healthy today; and, do people grow older in your universe, or stay perpetually young?

Bill, the law forbids insurers from charging younger people any less than 1/3 what they charge older people. That inevitably means that rates on younger people will be kept higher so that rates on older people will be lower.

At 30,000 per year, you get a subsidy for 538 dollars towards an approved plan. You save 38 dollars by enrolling in your example. Also you ignore the savings on doctors visits that a bronze plan would bring you over the catastrophic plan.

The worry is not that the market price for insurance is infinite, but rather at the prevailing market price one is simply paying one’s medical bills, plus a processing premium to the insurance company, rather than obtaining ex ante insurance.

This gets at the essential fact that all insurance must cover the cost of aggregate medical expenses plus some profit to the insurance company, which is why it is not a good idea, financially, to purchase insurance for anything you can afford to pay for out of pocket. (And that goes for pretty much every kind of insurance available). Over time, the price you pay for insurance premiums will necessarily be larger than the amount you would expect to spend yourself to replace your losses.

That’s why the kind of comprehensive coverage mandate by the ACA only makes sense if someone else (your employer, the government) is subsidizing the cost. If you are paying your own premiums, you ought to opt for as high a deductile as you can, and keep a savings account to cover the deductible. But beyond that, ACA adds on community rating, which means that relatively healthy people will not only be purchasing more exensive coverage than is really rational, they will be paying rates that are far higher than their expected medical expenses. if you add up the dollar amount the average 26 year old will pay in premiums, it will, on average come out to substantially more than the average medical expenses of a 26 year old.

The ACA defenders have said that’s the whole point that healthy people should subsidize sicker people, but that’s not how the ACA was sold. The argument for the mandate was explicitly predicated on the notion that uninsured individuals should be required to have insurance to pay for *their own* medical expenses. But the reality is that many people iwll be forced to purchase insurance so they can subsidize other people’s healthcare through inflated rates.

For the younger and healthier people the difference in rates may be so great that it would be a financially sound decision to pay the penalty and purchase a minimal catestrophic-only plan, even if it doesn’t qualify.

Why? Seriously – the current American system is highly inefficient, and part of that is the concern about profit. Health care does not need to be about ensuring that some company providing an unnecessary function continues to profit. As for the unnecessary – see just about any other model in the industrial world. In the case of Germany, insurance company ‘profit’ can be translated into ‘reserves’ – that is, if an ‘overage’/Überschuss occurs one year, it can be applied to a deficit that arises in the future, or used to reduce premiums – what doesn’t happen is that this profit enriches the insurance company – of which there are a number of in Germany.

But hey, that is just one model. The NHS uses a completely different one. And the French yet another. It isn’t as if there aren’t a lot of different systems to compare and contrast – though admittedly, the most expensives ones cost about a third less than the American system. Of course, those other systems aren’t ‘profitable’ – they just provide health care, essentially to everyone, essentially from cradle to grave. At considerably less cost.

Do you really think the health care system would get more efficient if we eliminated the profit motive?

Just about the ONLY thing controlling costs right now is the insurance company’s desire to not spend as much on treatment. Well, that will end with MLRs. The ACA turn the insurance agencies into “cost-plus” contractors and essentially lets doctors and hospitals set rates at whatever they please. The traditional answer to this is (naturally) price controls.

So we have a choice between (A) a highly regulated system in which semi-private “insurance” utilities pay regulated prices for health care and tack on a 20% profit, or (B) returning to some semblance of a market with actual price signals driven by actual consumer demands.

The inefficiency in the U.S. system is not caused by evil profits, it’s caused by price insulation created by government intervention, either through Medicaid/care or the employer tax incentives.

The German system rations expensive illness into death, especially for the elderly and the very young. This is still the country that put millions of Jews into ovens within living memory, they are not squeamish. And they’re not wrong — everyone dies eventually, and the cost of life-years should be evaluated. Americans need to make those decisions too, but most of us do not like the government making them for us.

The best way to keep prices down is Medicare for All where the government would use their power to negotiate payment rates with doctors, hospitals, and drug companies to keep costs from soaring. In addition, profits to insurance companies would be cut out. Finally, with only one payer, the government, all of the excess cost that is required to fill out multiple forms and process payments would disappear.

However, that would mean fighting all of the for-profit groups in the medical system. Obama will never do that and the Republicans only reason for existence to placate such interests. My hope is that some state will institute a system like this and the obvious benefits will lead others to do the same. That is what happened in Canada over 40 years ago.

When you call for the privatization of every road and highway so the free market determines the cost of using cars and trucks and who gets to drive cars or serviced by trucks and where, then you can be taken seriously.

I keep hearing North Korea is the best country in the world, and they seem to be closest to that ideal. Of course, people will point out it’s only North Koreans who say that, but who would know better?

And he got advice from the Senator who “chose to lose fighting for the more perfect” more times than anyone else, and finally realizing that it does not do anything to control health care costs or increase access to care, and who regretted failing to compromise on the possible so many times in the past.

Just thing about the most radical leftist big government liberal extremist in the world before Obama was elected, standing with Gov Mitt Romney as he signed Mass Obamacare into law in 2006. Romney joked that together, he and Ted Kennedy “have ended global warming because hell has frozen over.

Note that Medicare exists in the US for old people along with Medicaid for poor people because LBJ compromised on his plan of Medicare for all.

But I guess it is “blame Obama” for what happened in the 60s. 70s. 80s. 90s. 00s.

States not taking the medicare expansion may have effects on the median healthcare cost. We know the cost of medicaid is below that of the median of private health insurance plans. It is likely the case that median costs will be higher with states opting out than would have been with all opting in.

“…not everyone will enjoy the option of keeping the status quo, as had been promised”

The status quo for the decade prior to Obama’s election was:

– health insurance premiums rising every year with the premiums more than doubling over the decade

– health insurance benefits being cut by all sorts of means for the past decade, higher copays, new ot higher deductibles, lower limits on benefits,…

– the number of uninsured soaring in the “high employment growth” States

Why do the opponents of Obamacare want to return to the status quo of out of control health care costs, increased costs to individuals, and increased numbers of uninsured?

Would someone please explain the virtues of health care policy in the decade prior to Obama’s election, such that rejecting the conservative Republican health reform is preferred in order to maintain the prior decade’s heath care change direction “status quo” policy?

If CA and other states end up looking like MA, probably there will be some increase in average premia. Healthy younger people will pay more while older less healty ones will pay less as they all go into a common pool and coverage expands. This is probably the biggest problem in the MA system, and there has been recent legislation aimed at getting costs more under control.

“rate shock” by the non-inusred by their employers who don’t currently have insurance? Yeah, all 2.5 million out of 300 million of us are getting the shaft. Mayne they can make it up to themselves when they get to middle age and start using more medical services than they paid for in a given calendar year. Insurance is funny that way

And no one can say what the costs will be over the next few years. The quotes given by carriers to the California and Oregon exchanges are no better than educated guesses. Carriers will know more over the next few years as their experience grows.

The major driver of the cost of plans is provider networks, not community rating. Access = Rate. The more providers you have the more you’ pay. And with many of the largest carriers with the largest networks taking a wait and see approach, what’s left for the exchanges are many smaller carriers with narrow networks.

The fear among many healthcare experts is that while you may buy coverage, access to care may be limited.

We can already see where this high-speed train is going: more cost controls (i.e. rationing), more heavy-handed penalties, more regulation. The opportunities for graft and intimidation are ever-expanding, it’s the Chicago Way.

I find the screeds of most but not all of Roy’s critics to be inappropriate or in some cases beyond inappropriate. It is disturbing how much space and emotional energy is devoted to attacking Roy, and to attacking conservative policy wonkery,

What is the proper response when someone is seen as arguing in bad faith, which bad faith is demonstrated by the ease with which their superficial and careless arguments are refuted. When Roy publishes an article claiming rate shocks of 146% it is not unfair to point out that this is simply not supported by the evidence. There is no obligation to do a detailed analysis of what the effect on rates really is before one can point out gross errors in Roy’s piece.

What is the proper response when someone is seen as arguing in bad faith…There is no obligation to do a detailed analysis of what the effect on rates really

That’s just blatant motive speculation and you fail to actually make a substantive argument. Indeed your post is Begging the Question, by assuming your position is inherently true and the other side inherently false.

I really don’t get the argument against Roy. He asserted that the rate shocks were for a “typical” 25 year old male non-smoker, and he described his methodology.

The response was that for atypical 25 year old nonsmokers, insurance may not have been available at the preferred rate. That’s a fair response, and its worth consideration, but Chait especially is acting like Roy is a liar and made stuff up. There’s a huge jump from “you didn’t consider fact Y, which I think is important,” to “you’re a liar.”

(Weirdly, Chait is also offended by a Drudge headline that states that rates may go up by “up to” some percentage or other. Chait’s evidence against this is that for some people, rates might go up by that much, but for other people, they won’t. That was always my understanding of what “up to X%” means, but apparently Chait has some other understanding.

Respectfully, I own a small business with 14 employees that has Carefirst BC/BS group plan. For at least the last 10 years, we have seen out premiums rise, on an annual basis, something in the order of 20-30%, every year. To manage this, we have increased copays and deductibles, and other measures, but anybody who thinks there is cause and effect between Obamacare and rate shock needs to have their heads examined. We have been gouged by health insurance companies for decades. This is just another excuse for them to really stick it to their customers. But the one thing that they have to reckon with is the requirement that they rebate premiums if less than 80% of premium revenue is applied to the actual direct costs of medical care. So there is a limit to which the gouging can be naked profiteering.